Oil at Five-Week Low as Supply Worries Compound Trade War Threat

(Bloomberg) -- Crude fell to the lowest in more than five weeks as a surprise rise in U.S. crude inventories and increases in production from OPEC and Russia has investors worried that global supply levels are on the upswing.

Futures in New York dropped 1.6 percent on Wednesday. While data from the Energy Information Administration showed U.S. crude inventories rose 3.8 million barrels last week, Saudi Arabia pumped near-record volumes in July and Russia increased its crude production to levels not seen since it joined OPEC in a coordinated output cut two years ago.

Meanwhile, the U.S. is considering more levies on Chinese imports, according to people familiar with the internal deliberations, imperiling demand growth.

“It's like one bit of bad news on top of the other on the supply side,” said Bart Melek, head of global commodity strategy at TD Securities in Toronto. “There's an overarching problem and concern about the demand side as well. There continues to be a concern that we might see a widening of the sanctions against China.”

Saudi Arabia's oil production grew by 230,000 barrels a day in July to 10.65 million barrels a day, just shy of an all-time peak reached in 2016, according to a Bloomberg survey of analysts, oil companies and ship-tracking data. Russia boosted its production last month to just below the post-Soviet record set in October 2016, Energy Minister Alexander Novak said in a statement late on Wednesday. That's equivalent to about 11.21 million barrels a day.

Trade tensions “continue to weigh on the broader markets and obviously commodities,” said Matt Sallee, who helps manage $16 billion at Tortoise Capital Advisors LLC in Leawood, Kansas. “There's no doubt that it would be a negative for the economy and commodity demand.”

West Texas Intermediate crude for September delivery dropped $1.10 to settle at $67.66 a barrel on the New York Mercantile Exchange. Total volume traded was about 23 percent below the 100-day average.

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Brent for October settlement dipped $1.82 to end the session at $72.39 on the London-based ICE Futures Europe exchange. The global benchmark traded at a $5.89 premium to October WTI.

The EIA also reported U.S. crude exports posted the biggest decline on record last week, while U.S. crude production fell for the first time since February. Crude stored at the key Cushing pipeline hub in Oklahoma declined for an 11th straight week. At the same time, refiners accelerated oil processing for the first time since late June.

Other oil-market news:

• Gasoline futures fell 1.7 percent to settle at $2.0451 a gallon.
• Investors added the most money in July to the United States Oil Fund, the biggest exchange-traded fund tracking crude prices, since August 2017.
• Whiting Petroleum Corp. gave up some of this year's stellar gains after reporting lower-than-estimated crude production for the second quarter.

To contact the reporter on this story: Jessica Summers in New York at jsummers24@bloomberg.net

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Catherine Traywick, Debarati Roy

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